United States: Fed Vice Chair Discusses Tailoring Prudential Standards For Large Banks

Federal Reserve Board ("FRB") Vice Chair for Supervision Randal K. Quarles asserted that the agency "can and will" work quickly to tailor regulatory requirements for large banks. The recently enacted Economic Growth, Regulatory Relief and Consumer Protection Act mandates that the FRB propose a rule on enhanced prudential standards within 18 months. Mr. Quarles said the FRB will release a proposal before the deadline.

In a speech before the American Bankers Association, Mr. Quarles stressed the importance of ensuring that prudential rules adequately account for the degree of complexity and interconnectedness of large firms. He argued that risk-based and leverage capital requirements should remain important for large banks, and that supervisory stress tests will be used as a significant measure of evaluating firms' abilities to withstand losses in the event of an economic downturn. He said the FRB may consider reducing the frequency of required company-run stress tests for less complex banks regardless of asset size. Mr. Quarles also indicated that the FRB will explore reducing the frequency of supervisory stress tests for banks with less than $250 billion in assets.

Mr. Quarles stated that liquidity regulation is essential to an effective regulatory framework. While minimum liquidity requirements and mandated liquidity stress tests are important for firms with greater than $100 billion in assets, he argued, less complex firms should potentially be subject to less restrictive liquidity requirements. He asserted that banks with greater than $250 billion in assets that are not global systemically important banks ("G-SIBs") should not be subject to the same liquidity requirements as similarly sized G-SIBs.

Mr. Quarles encouraged a reassessment of how resolution-planning requirements are calibrated. He called for less burdensome requirements for banks that do not pose great resolvability risks, and suggested that the requirement may be removed altogether for banks with less than $250 billion in assets.

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